In the wake of the coronavirus pandemic outbreak, key economies around the world have had to witness a first of its kind situation with large uncertainty ahead. While some changes were foreseeable, others have been far too difficult to manage such as nationwide lockdowns and strict social distancing measures bringing all economic activity to a standstill. The last three months saw corporate profits tumbled, governments having to release heavy stimulus packages to support businesses and people, companies withdrew their earnings guidance and deferred dividend payments. In a nutshell, the Covid-19 has presented a tough test for the world leaders, one that no one prepares for.
China To Abandon GDP Targets
During these unprecedented times of crisis and high level of uncertainty clouding the near-term fate of major economies due to Covid-19 impacts, the Chinese government has relinquished its decades-long tradition of setting up an economic growth target for this year amid supply chain disruptions, volatility in the commodity markets and steep decline in consumption and exports. Li Keqiang, the Chinese politician, head of the State Council of the People's Republic of China as well as an economist by trade, announced the details of the renewed focus of the government on maintaining employment, promoting investment and stabilising the economy.
China, which was the epicentre of the birth of the coronavirus, is not only dealing with the aftermath but had also been entangled in intensified trade tensions with the US for more than a year with phase of the trade deal yet to be finalised. From opening its economy to foreign trade in 1979 to being amongst the world’s fastest growing economies today, China has had a rapid growth to becoming an economic power owing to its strong leadership, labour supply, export led growth, new manufacturing machinery and factories, all leading to enhanced productivity.
Prior to the pandemic kicked in, China’s GDP growth target was around 6%. Currently, the primary focus for the country remains uplifting the domestic economy back on track and waiting for the world economic and trade environment to improve.
Li Keqiang’s address to the National People’s Congress in Beijing comprised other announcements like expectation of the budget deficit to be around 3.6% of the Gross Domestic Product (GDP), a target to generate over 9 million of urban jobs and lower unemployment as all key sectors, especially aviation, manufacturing and other services, have been hit hard stripping many people off their livelihood.
The Chinese government would also be issuing, as announced, around CNY 1 trillion in sovereign debt to support the reopening of the economy and expedite recovery.
As China embarks on this new journey to recovery, the country has suffered a withering blow from the virus in terms of economic slowdown (GDP decline of 7% in the first quarter of 2020), death toll crossing 4,000 and a total of 82,926 confirmed Covid-19 cases. Nevertheless, the Chinese economy has always exhibited strong resilience and great potential to able to keep on truckin’ as the health crisis subsides.
Japan Launches Fed Inspired Lending Policy To Support Economy
Recently, the Bank of Japan has allocated nearly JPY 30 Trillion to support small businesses impacted by the coronavirus and inject urgent liquidity to prevent the economy from spiralling into a deeper recession, thus creating its own version of “US Federal Reserve’s Main Street" lending programme. The monetary policy board of the Japanese central bank held an emergency meeting to discuss further actions required to stimulate the private sector and keep the economy buoyant and recover more rapidly.
Around 16,049 confirmed COVID-19 cases and nearly 678 deaths have been reported in Japan while the authorities took several measures toward health and containment efforts.
The Bank of Japan has also extended the deadline for a range of measures amid Covid-19 including accelerated corporate debt purchases by six months to March 2020, unchanged monetary policy with short-term interest rate target of -0.1% and decided to guide 10-year government bond yields around 0% to provide optimum cushion to the economy. The central bank has also indicated to buy unlimited government as well as corporate bonds to provide stability to the financial markets.
As per the recent scheme announced, the Bank of Japan will inject more cash to smaller to medium sized firms via funding aid programmes launched by the government and begin offering loans from June 2020 onward. This step was much required as most of Japan’s schemes and focus was on bigger firms that already have access to credit facilities and loans.
In early April 2020, Japanese government had adopted the Emergency Economic Package Against COVID-19 of JPY 117.1 Trillion (21.1 % of 2019 GDP) covering a myriad of objectives like strengthening of the treatment capacity, protection to employment and businesses, kickstart economic activity and build a resilient economic and healthcare structure for the future.
It is noteworthy that Japan has made some of the largest contributions to IMF financial resources, and to the Fund’s concessional lending facilities over the years. In April 2020, Japan not only provided USD 100 million to the IMF’s Catastrophe Containment and Relief Trust as immediately available relief resources for the poorest and most vulnerable countries fighting Covid-19, but later announced to double its contribution to the Poverty Reduction and Growth Trust (PRGT) from the current SDR 3.6 billion to meet the imminent needs of emerging markets and developing countries.
As a start to reopen the economy, Japan has lifted emergency for 39 prefectures out of a total of 47 prefectures, amid the declining trend of daily new confirmed cases of COVID-19 since the beginning of May 2020.
As most countries around the world are now strategically planning to reopen their economies, the challenge that remains is balancing economic hardship with a public health hazard that seems to be retreating now.